Standing Committee D

[John Bercowin the Chair]

Clauses 858 to 871 ordered to stand part of the Bill.

Schedule 12 agreed to.

Clauses 872 to 880 ordered to stand part of the Bill.

Clause 881

Delegation of the Secretary of State’s functions

Amendment made: No. 268, in clause 881, page 428, line 33, leave out subsection (3).—[Margaret Hodge.]

Question proposed,That the clause, as amended, stand part of the Bill.

Margaret Hodge: I made a mistake in my contribution on Tuesday, which I would like to correct. In column 469 of Hansard, where I said that the subsection was ineffective, I should have said “defective”. I hope that Members will accept that correction.

Question put and agreed to.

Clause 881, as amended, ordered to stand part of the Bill.

Schedule 13 agreed to.

Clauses 882 to 893 ordered to stand part of the Bill.

Schedule 14 agreed to.

Clause 894 ordered to stand part of the Bill.

Clause 895

Transparency rules

Jonathan Djanogly: I beg to move amendment No. 422, in clause 895, page 438, line 28, leave out from ‘information” ’ to end of line 30 and insert
‘means information relating to the proportion of voting rights held by a person in respect of voting shares.’.

John Bercow: With this it will be convenient to discuss amendment No. 430, in clause 895, page 439, line 43, leave out ‘a person’ and insert ‘the issuer’.

Jonathan Djanogly: We move on to part 36, which deals with transparency obligations. It replaces three clauses in the original Bill; the Government introduced it in the Lords because those previous clauses were ambiguous. It now accurately implements the transparency directive 2004/109/EC, which harmonises transparency requirements in relation to information about issuers whose securities were admitted to trading on a regulated market, and amending directive 2001/34/EC.
We propose two technical amendments, which were suggested by the Law Society. Amendment No. 422 would amend the definition of voter information in proposed new section 89B(2). The current definition puts “in respect of voting shares” before “means”, which does not fit well with the use of the expression in proposed new sections 89A(3), 89B(3) and (4), and 89C(3) and (4), where the words “in respect of voting shares” are not used.
In proposed new section 89B(3) and (4), the expression “voteholder information” is followed by the words “relating to a person”, and in proposed new section 89C(3) and (4), it is followed by the words
“relating to the proportion of voting rights held by an issuer in respect of voting shares in the issuer”.
The drafting of those provisions would be improved if the definition suggested in the amendment were adopted and the necessary consequential amendments made.
In amendment No. 430, we suggest that the words “a person” in proposed new section 89C(5) should be replaced by the word “an issuer”.
The amendments are technical. We believe that they deserve consideration for purposes of clarification.

Margaret Hodge: The amendments are technical, and I shall address them in turn. Amendment No. 422 would change the definition of “voteholder information” in proposed new section 89B(2) by deleting the words
“relating to the proportion of voting right held by a person in respect of the shares”
and inserting
“means information relating to the proportion of voting rights held by a person in respect of voting shares.”
The amendment would clarify the definition of information on the proportion of voting rights held to ensure that it related to voting rights in voting shares rather than, for example, in non-voting shares. It would be an unnecessary addition, because it is already clear that the only shares capable of being referred to in the clause are voting shares. That is made clear from the reference to “the shares” at the end of proposed new section 89B(2), which refers back to “voting shares” referred to earlier in that subsection. In our view, therefore, the amendment is not required.
Amendment No. 430 would substitute the term “issuer” for the term “person” in proposed new section 89C(5). Subsection (5) defines a “notifiable change” in the proportion of voting rights held for the purposes of subsection (4), which, in turn, sets out the circumstances in which the transparency rules may require
“notification of voteholder information relating to the proportion of voting rights held by an issuer”
in respect of the issuer’s own shares. Thus, the provision deals with a narrow and specialised area of rules governing disclosure when an issuer owns some of its own shares.
Proposed new section 89C(5) uses the more general term “person” when defining by whom the voting rights must be held. That word achieves the desired purpose of covering the classes of issuer referred to in proposed new section 89C(4). Moreover, it does so more succinctly than would be the case by repeating the words in that proposed section, which are
“voting rights held by an issuer in respect of voting shares in the issuer”.
Amendment No. 430, which would replace the words “a person” with “the issuer”, would leave the clause no more complete, as the provisions relate not to all issuers, but only to an issuer in respect of voting shares in the issuer. The amendment is therefore not required. 
We welcome scrutiny to improve technical drafting and have considered the amendments carefully, but it is clear that they are not necessary to achieve the desired purpose. I hope that, with that explanation, the hon. Gentleman will agree not to press them.

Jonathan Djanogly: I thank the Minister for that clarification and the explanation, which I understood and with which I agree. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Margaret Hodge: I beg to move amendment No. 415, in clause 895, page 441, line 5, at end add—
‘(2) The effectiveness for the purposes of section 155 of the Financial Services and Markets Act 2000 (consultation on proposed rules) of things done by the Financial Services Authority before this section comes into force with a view to making transparency rules (as defined in the provisions to be inserted in that Act by subsection (1) above) is not affected by the fact that those provisions were not then in force.’.
The amendment is necessary to ensure that the Government can meet their obligation to implement the transparency directive by 20 January 2007. The UK is doing so through provisions in the Bill and through the transparency rules to be made by the Financial Services Authority under powers contained in those provisions. Such rules must come into force by 20 January 2007.
The FSA has its own statutory consultative process for making rules, contained in section 155 of the Financial Services and Markets Act 2000, so the only way for it to meet that deadline is by consulting on the proposals at the same time as the Bill is proceeding through Parliament. It is in fact doing so now. However, under the provisions of the Bill that give the FSA the power to make transparency rules, it is unclear whether its current consultation meets the requirements of the 2000 Act. That is not because the consultation is technically deficient in any way, but because the Bill does not make it clear that a consultation taking place before it comes into force is valid.
Serious consequences would arise if the provisions were not amended. Either the necessary rules would not be made until the consultation process was repeated after the Act came into force, or the status of any rules that were made would be open to question. In the former case, rules made under a process starting after Royal Assent would necessarily not be made in time for the directive to be enforced by 20 January next year. As a result, we would breach our obligations under the directive and the European Community treaty.
In the latter case, the FSA rules governing the disclosure of periodic financial information and shareholdings in companies trading on a regulated market in the UK could be open to challenge as being ultra vires. If the rules were found to be invalid, that would impose material costs on stakeholders and, in particular, provide a defence against any attempt by the FSA to enforce the rules. Again, the Government would be in breach of their EU obligations and the Commission could start infraction proceedings against the UK. I therefore hope that, following that very good explanation, hon. Members will agree to the amendment.

Jonathan Djanogly: I understand where the Government are coming from and I do not disagree with the principle of the proposal. Would it not be slightly more elegant to make regulations rather than include in the Bill a holding position that will remain for ever more?

Margaret Hodge: The hon. Gentleman asks an interesting question. On the whole, hon. Members do not like regulations because they feel that their ability to question the Government and hold them to account is more limited. We need the amendment because the implications were not realised earlier. I believe that that answers the hon. Gentleman’s question, which is one of how we wish Members of Parliament to have oversight. On the whole, people prefer such provisions to be in Bills, although we could have done it either way.

Jonathan Djanogly: I thought that the Minister’s point—she can clarify this—was that because of timing problems, provisions are overlapping, and the measure is therefore a failsafe to ensure that the consultation is taken on board. I appreciate that and I am not saying that the Government are wrong, but why should the provision be left in the Bill after it has all happened? Why cannot this be done by regulation, which would fall away, leaving the law, rather than merely a necessary holding procedure, in the Bill?

Margaret Hodge: I accept that we could have done this the other way—it might have been neater—but we have chosen to do it this way, for the reasons I gave. I agree that this will be in the Bill afterwards.

Amendment agreed to.

Question proposed,That the clause, as amended, stand part of the Bill.

Jonathan Djanogly: The explanatory notes say that three main categories of obligation are imposed under the directive: companies should treat the holders of shares equally, companies should make public information on their financial position and holders of votes should notify companies when the number of votes reaches a specified proportion of the total. The amount specified under the Companies Act 1985 is 3 per cent. Will that rule remain or be changed?
I note that section 89E(3) of the 2000 Act contains some overlap between the takeover panel notifications and the notifications required by the directive. Will the Minister explain how subsection (3) will resolve that issue?

Margaret Hodge: The FSA is consulting on the 3 per cent. rule, and I think that I shall have to write to the hon. Gentleman on his second question.

Question put and agreed to.

Clause 895, as amended, ordered to stand part of the Bill.

Clause 896

Competent authority’s power to call for information

Jonathan Djanogly: I beg to move amendment No. 326, in clause 896, page 442, line 10, at end insert
‘, provided that a relevant person may not be required to disclose any information or document in respect of which a claim to legal professional privilege (in Scotland, to confidentiality of communications) could be maintained in legal proceedings.’.
This amendment has been proposed by the Law Society to ensure that the entitlement of the competent authority to require a relevant person to provide an explanation of a document does not override legal professional privilege. Clause 896 will introduce new section 89G of the 2000 Act, which will give the competent authority—the FSA—the power to call for information.
Under new subsection 89G(3), if a document is produced in response to a requirement imposed under the section, the competent authority can require any relevant person to provide an explanation of the document. The term “relevant person” is defined to include a lawyer, instructed by the person, who is required to produce the document. It would not be appropriate for a lawyer to be required to disclose information in respect of which he was entitled to legal professional privilege. The amendment reproduces a similar exemption in clause 647(10) on the subject of takeovers.

Margaret Hodge: The clause inserts sections in the 2000 Act that give the competent authority, the FSA, the power to require information from persons or companies when reasonably exercising its functions under the transparency rules. The FSA will be able to take copies of or extracts from documents that are produced in its investigations. The FSA will also be able to ask for an explanation of a document. However, the powers will be limited by section 413 of the 2000 Act, the effect of which is that a person may not be required to disclose communications between a professional legal adviser and his client or any person representing his client. It is our view that the powers that the Opposition seek to limit are already limited. In the light of that, I hope the hon. Gentleman will agree to withdraw his amendment.

Jonathan Djanogly: I thank the Minister for that clarification. Presumably, we will check that, but if it is the case, our concerns are covered. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 896 ordered to stand part of the Bill.

Clause 897 ordered to stand part of the Bill.

Clause 898

Corporate governance rules

Question proposed, That the clause stand part of the Bill.

Jonathan Djanogly: Proposed new section 89M of the 2000 Act gives the “competent authority”—the FSA—a power to make rules implementing European Community obligations on corporate governance.
First, will the Minister confirm how that will interplay with the combined code? Subsection (3) provides that burdens imposed on issuers whose securities are traded outside the UK must not be greater than those imposed on issuers with securities on UK markets. As the combined code is the most advanced set of corporate governance rules in Europe, will that require changes to it?
Secondly, will the Minister confirm to what extent the provisions, if at all, enable corporate governance measures to be put on alternative investment market listed companies? Only this week, I read a report that Sir Derek Higgs had given a speech in which he advocated a combined code being imposed on AIM listed companies. That was a bolt from the blue. Will the Minister advise us on whether the Government are considering that?

Margaret Hodge: The corporate governance power provided for in clause 898 is an enabling power that will allow the competent authority—the FSA—to make rules to allow the implementation of Community obligations on corporate governance for issuers on a regulated market in the European Union.
Current UK requirements on corporate governance are set out in the combined code issued by the Financial Reporting Council and enforced through the listing rules by the FSA. The listing rules require that companies listed in the UK state how they comply with the code, or explain how they deviate from it. I shall take this opportunity to assure the Committee that the Government support wholeheartedly that model and the non-statutory approach to corporate governance under the combined code.
The combined code has successfully driven up corporate governance standards in the UK. The recent FRC review of the combined code found that since the introduction of the new code in 2003 companies and investors have reported that dialogue between boards and shareholders has improved. Overall disclosure in annual reports continues to improve.
The non-statutory nature of the combined code is rightly held up as a key strength of the UK corporate governance regime. However, sometimes the non-statutory approach of the code and its scope of application are insufficient to implement our corporate governance obligations under European law. In such instances, reference to provisions of the code might offer the most logical and proportional approach to implementation. For example, let us consider the audit committee requirements in the eighth company law directive on auditing. In that instance, the combined code already includes equivalent provisions on audit committees and is referred to in the listing rules.
The power in the proposed new section will simply allow the FSA to make rules referring to the code to be applied to UK companies trading on a regulated market in the UK and on non-UK markets. Our intention is that the power will provide one possible approach to implementation of our obligations and will be used only when it is broadly accepted that FSA rules offer the best approach consistent with our obligations and following full stakeholder consultation. That way, we will preserve a central role for the code and meet our European obligations to implement the directive.

Jonathan Djanogly: Are the Government considering anything at the moment?

Margaret Hodge: No. The hon. Gentleman asked whether this will require changes to the combined code. The answer is no, but not because of differences between the UK and other standards. Some adjustments may be needed to reflect the provisions that the clause is designed to implement.
The hon. Gentleman asked whether this will be extended to the AIM. The combined code does not apply to AIM listed companies and there is no plan that it should do so. The AIM is free to apply if it so wishes. The report by Sir Derek Higgs on non-executive directors said that he hoped that some measures would be equally relevant to AIM listed companies.

Question put and agreed to.

Clause 898 ordered to stand part of the Bill.

Clause 899

Liability for false or misleading statements in certain publications

Margaret Hodge: I beg to move amendment No. 416, in clause 899, page 446, line 29, leave out from ‘of’ to ‘and’ in line 30 and insert
‘loss suffered as a result of reliance by any person on—
(i) an untrue or misleading statement in a publication to which this section applies, or
(ii) the omission from any such publication of any matter required to be included in it,’.
The amendment is necessary to ensure that the statutory liability regime governing the transparency directive disclosures has appropriate boundaries and in particular that it covers all claims for damages in respect of losses suffered as a result of the reliance on transparency directive disclosures.
The background to the amendment is the Government’s decision—strongly supported by a wide range of stakeholder opinion and taken during the Bill’s passage through the other place—to introduce a statutory liability regime to cover disclosures required by the transparency directive and the narrative reporting requirements by UK companies. That was necessary to remove uncertainty over the liability regime, which risked constraining important disclosures by companies in, for example, the narrative reports to be included in annual reports, thus reducing their effectiveness and the accountability of directors.
Accordingly, following discussion with stakeholders, liability provisions were introduced in the other place. However, in the light of our more detailed consideration of those provisions, it has become apparent that they do not fully capture the scope of the intended liability regime. In particular, they would provide a statutory liability regime that covered only shareholders who made decisions relying on those disclosures. As I said, the regime is supposed to provide a statutory liability regime and give the benefit of certainty in all cases in which someone has made decisions relying on those disclosures. The regime should apply to shareholders and non-shareholders alike, and the amendment will correct that omission.
The amendment is needed to ensure that the liability regime has the correct scope, as discussed with stakeholders. It will ensure that issuers and investors, actual and potential, face a clear and consistent statutory liability regime with regard to losses arising from reliance on periodic financial information disclosed under the transparency directive.
For completeness, hon. Members will note that there are still certain stringent conditions that must be met before losses can be recovered by those parties within the scope of the statutory liability regime. The losses must be suffered as a result of reliance on a transparency directive disclosure; the disclosure must contain statements that are untrue, misleading or made recklessly, or omissions that dishonestly concealed material facts; and the person suffering loss must be a shareholder and suffer loss as a result of acting in reliance on such a statement, at a time and in circumstances in which it was reasonable so to rely.
Those requirements reflect a number of circumstances, including the Government’s desire to avoid radical change to the law in this area, to respect the preferences of stakeholders and, especially, to ensure that company resources are not inappropriately diverted from shareholders, employees and creditors to the benefit of a much wider group of actual and potential investors.
I hope that the Committee will support the amendment.

Jonathan Djanogly: The amendment seems reasonable.

Amendment agreed to.

Jonathan Djanogly: I beg to move amendment No. 208, in clause 899, page 447, line 8, at end add—
‘(9) The provisions of this section shall also extend to—
(a) preliminary statements of results and other announcements to the market by listed companies permitted or required by the Disclosure Rules and the Transparency Rules,
(b) companies with securities quoted on the Alternative Investment Market (AIM), and
(c) companies admitted to trading on an EEA regulated market in situations when UK law is the applicable law.’.
The FSA is satisfied with the clause, which deals with liability for false or misleading statements in certain publications, and said that it was watertight in legal terms. However, the Institute of Directors raised a problem with its narrow scope. It welcomed the Government’s willingness to introduce some limitation on directors’ liability in respect of narrative reports and statements, but recognised that defining the scope of the limitation in the area of transparency obligations is not helped by the parallel development of such obligations. It also said that it is important to extend protection to all companies, including alternative investment market and European economic area companies that have to make such disclosures. It believes that that could be achieved by the wording in the amendment.
That position was backed up recently by the CBI, which said that it strongly welcomed the Government amendments introduced on House of Lords Third Reading for some limitation on the legal liability of companies and directors under companies legislation, and amendments to the Financial Services and Markets Act 2000 in connection with implementation of the EU transparency obligation directive.
However, the CBI believes that the provisions on liability in clause 899 should extend to
“preliminary statements of results and other announcements to the market by listed companies permitted or required by the Disclosure Rules and the Transparency Rules”
issued by the FSA. It strongly believes that the same liability regime should apply to requirements and obligations under both sets of rules to ensure fairness and consistency.
The same liability regime should also extend to companies with securities quoted on the alternative investment market so that such companies and their directors are treated in an equivalent and fair manner. There is also a wish from those companies affected that a liability regime should extend to companies trading on an EEA-regulated market in situations where UK law is the applicable law.
There seems to be a consistent message coming from business, with which we agree, that a wider variety of documents should attach the same liability as documents subject to the clause, and that that liability should attach to all listed companies rather than just fully listed companies.

Margaret Hodge: The amendment proposes several changes to extend the scope of the liability provisions beyond that required to address the risks of liability of issuers and their senior management in damages that may arise. It may be helpful to give some history of why we have introduced the clause.
The Government’s decision to propose statutory provisions governing liability in damages arising from transparency disclosures was determined by specific circumstances. The wording of the transparency directive led the Government to conclude that, were they not to implement a statutory liability regime, there would be a substantial risk that the courts would decide that the Government had not implemented the directive correctly. However, the same situation does not apply to the classes of disclosure to which the amendment would extend the liability regime.
Liability is a complex issue. It is linked to other aspects of the Bill, such as directors’ duties and the purposes for which statutory reports are produced. A statutory liability regime clearly has the potential to provide greater certainty than one resting on common law, but implementing one in areas related to, and with different contexts from, the transparency directive is a difficult matter, which may carry with it many disadvantages. For that reason, a regime in those other areas would be different from, although broadly similar in structure to, the provisions of the clause, which deal purely with potential liability flowing from the implementation of our obligations under the transparency directive.
The classes of disclosure to which the amendment would extend the directive statutory liability regime vary in their purposes, formats, content, standards for disclosure and the level of reliance placed on them. All those factors need to be considered when determining the scope of any liability for disclosures. A statutory liability regime may establish liability in areas that currently have no or very low risks of liability. Introducing a statutory regime also risks losing the flexibility that might be associated with the common law and regulatory liability regime. Those risks have led the Government to limit the scope of the proposed statutory liability regime to those disclosures for which a compelling case has been made. A compelling case has not yet been made to increase the scope in the areas that are the subject of the amendment.
Nevertheless, arguments have been advanced that suggest that there may be some advantages—as the hon. Gentleman laid out—in introducing a broader liability regime to cover some of those areas. With that in mind, the Government are considering the matter further in close liaison with stakeholders, and will advise on the outcome of that consideration. We hope to do so on Report.

Jonathan Djanogly: The Minister says that the Government hope to return to the matter on Report. I do not think that there is anything after Report, so I hope that they do so before we discuss the Bill then and that we might hear from them over the summer so that we can prepare for our deliberations.

Margaret Hodge: If the hon. Gentleman is saying that he would like to be kept informed of negotiations, I will ensure that he is.

Jonathan Djanogly: The Government say that they have done the minimum, and clearly they have. We are pleased to hear that, but a number of business organisations have raised valid points. When I sat down and looked at what they were saying, I could see that they had a fair point. Why should the clause apply only to some documents and not others? Why should a director not get cover because he happens to be a director of a named company rather than a fully listed company?

James Brokenshire: Does my hon. Friend agree that although there are some differences in terms of the overall membership of alternative investment market listed companies as contrasted with officially listed companies, quite often similar institutions do exist, so it seems a strange paradox that one regime may operate for one type of company and a different regime for another type?

Jonathan Djanogly: Yes. Of course, there are different regimes for the two markets, and I will not say that they should be merged, because this country obtains a huge competitive advantage from having a different regime. However, I cannot see an argument for the liability that attaches to directors when producing company documentation being greater in respect of writing wrong things in one document than in respect of doing so in another. Likewise, the protection that directors have should be similar.

James Brokenshire: My hon. Friend is right to highlight the different regimes and the fact that AIM is intended to be lighter-touch regulation. In many ways, that acts in a very competitive way in the capital markets on an international basis, but one of the clear threats is the robustness of the market to ensure that people can rely on documentation and that the market is not drawn into disrepute. Provisions to ensure that there are proper protections and that documents are correct and can be relied on are important in that context.

Jonathan Djanogly: I accept that point; my hon. Friend is right.
The Minister started off in a robust manner and I thought that she was bluntly rejecting our reasonable proposals, but at the end she seemed to pull back and said that she would consult further. She has made the right decision, and I thank her for offering to keep us in the loop over the summer, because obviously we will want to prepare for Report, which is shortly after that. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 899, as amended, ordered to stand part of the Bill.

Clauses 900 and 901 ordered to stand part of the Bill.

Schedule 15 agreed to.

Clause 902 ordered to stand part of the Bill.

Clause 903

Grants to bodies concerned with actuarial standards etc

Question proposed, That the clause stand part of the Bill.

Jonathan Djanogly: Part 37 has the tremendous title “Miscellaneous provisions”. The explanatory notes state:
“In welcoming the recommendations of the Morris Review, the Government announced in Budget 2005 its intention to legislate in due course to put the oversight regime”
for the actuarial profession
“onto a full statutory footing.”
As there was not the time to do that, it was agreed with the Financial Reporting Council and the Faculty and Institute of Actuaries that the FRC would begin voluntary oversight from April this year, pending the introduction of a full statutory regime. Will the Minister give a view on how effective that has been to date and a general update on the timing of the review?

Margaret Hodge: I do not have any information with me on how well the interim process is working, so I will have to write to the hon. Gentleman.

Question put and agreed to.

Clause 903 ordered to stand part of the Bill.

Clauses 904 and 905 ordered to stand part of the Bill.

Clause 906

Disclosure of information under the Enterprise Act 2002

Jonathan Djanogly: I beg to move amendment No. 457, in clause 906, page 451, line 21, after ‘Kingdom’, insert—
‘or, if such proceedings relate only to intellectual property rights, in any jurisdiction.’.

John Bercow: With this it will be convenient to discuss the following amendments: No. 418, in clause 906, page 452, line 1, leave out—
‘annulment in pursuance of a resolution of either’
and insert ‘affirmative resolution of each’.
No. 419, in clause 906, page 452, line 2, at end insert 
‘and after prior public consultation on the terms of a draft statutory instrument’.
No. 456, in clause 906, page 452, line 5, at end add—
‘(6) A public authority must not make a disclosure under this section unless it is satisfied that the making of the disclosure is proportionate to what is sought to be achieved by it.’.

Jonathan Djanogly: Amendment No. 456 would amend part 9 of the Enterprise Act 2002, to enable public authorities to disclose information for the purpose of establishing or defending legal rights. Section 237, in part 9 of the 2002 Act, generally obliges public authorities to keep certain information confidential during the lifetime of an individual or a business. Part 9 allows disclosure of information, notwithstanding section 237, in connection with criminal proceedings. Amendment No. 456 would extend the protection to civil proceedings, including in prospective proceedings and for the purposes of obtaining legal advice in relation to such proceedings.
Section 242(3) contains a proviso:
“A public authority must not make a disclosure under this section unless it is satisfied that the making of the disclosure is proportionate to what is sought to be achieved by it.”
It has been pointed out to us by solicitors at Farrer that no such proviso is included in proposed new section 241A of the 2002 Act, but their view is that one should be. That is particularly important, in view of the nature of civil proceedings and the wide scope of the clause, which includes prospective proceedings.
Amendments Nos. 457, 418 and 419 come from the CBI. In the Grand Committee in the Lords, Lord Hodgson tabled amendments to limit the amendment of part 9 by proposed new section 241A to intellectual property rights. Currently, proposed new section 241A, provided by clause 906, gives wide powers to amend part 9 in respect of all kinds of legal proceedings. That is because the Government want to include consumer rights within the gateway. They consulted on that last year, but have not given an adequate justification to extend the gateway under part 9 to consumer rights, which CBI members oppose. On the other hand, there is general agreement that part 9 should extend to information concerning IP rights and IP proceedings to counter the ever increasing problems of counterfeiting and piracy.
The CBI has told us that it has been in discussion with the Department of Trade and Industry on those issues, which says that the scope of the amendments to part 9 can be debated in the context of the secondary legislation to amend part 9, on which it will consult in due course. However, in view of its members’ opposition to any amendment to part 9 beyond intellectual property rights, the CBI wants clause 906 itself to give powers only in respect of intellectual property rights. We are told that CBI members strongly oppose any further reform that would weaken the part 9 safeguards and seriously undermine business confidence in the arrangements under the 2002 Act.
The consumer and competition enforcement regime rests on the fact that a wide range of information is provided to public authorities by business on the basis that it will not be disclosed. In general, the gateways work well. There is no justification for making any wider changes than those needed against infringers of IP rights. As the Government wish also to include consumer rights in the scope of the secondary legislation, they have refused the CBI’s request to limit clause 906 to IP rights.
However, on Report in the House of Lords, the Government tabled some drafting amendments to the clause. Those were also suggested by the CBI and formed part of Lord Hodgson’s earlier proposed amendments, including making reference to prospective legal proceedings in proposed new section 241A(1)(b) of the 2002 Act, which the CBI welcomes. However, as a minimum, it wants amendments Nos. 418 and 419 to be considered.
First, section 241A(1)(b) needs amendment to refer to IP proceedings in any jurisdiction, not limited to the United Kingdom. It is often the case that counterfeits found on the market in the UK have been imported. For brand owners to take effective action to reduce the trade in counterfeits, they need to be able to pursue everyone in the supply chain, including the manufacturer. That might involve criminal, administrative or civil action, depending on the local laws applicable.
It is also essential to be able to use such information to feed into the worldwide intelligence gathering exercise. In that connection, it is important to emphasise that, apart from amendment No. 457, there is no other impact on section 243 of the 2002 Act concerning overseas disclosures, in particular subsection (3). Those provisions are vital to having, and maintaining, an effective part 9 regime, and section 243 should not otherwise be affected by clause 906, or any secondary legislation to be introduced.
Secondly, the secondary legislation proposed by the Government under clause 906 should be subject to full and formal prior public consultation and debate in Parliament, and be subject to affirmative resolution of each House, not negative resolution as currently provided. That is the background to amendments Nos. 418 and 419.
In conclusion, any secondary legislation introduced pursuant to the clause should be subject to the inclusion of effective safeguards against wrongful disclosure.

Margaret Hodge: I am aware of the business concerns about the order-making power of the clause and my officials have met with CBI representatives to discuss those concerns further. We also amended the clause on Report in another place, following helpful proposals from the Opposition.
Amendment No. 418 was discussed in Committee in another place. At that time, we explained that this procedure has been chosen because it is consistent with the other order-making powers in part 9 of the 2002 Act, which may be used to provide for wider disclosure of information. We therefore see no good reason to distinguish between those powers and this one.
I recognise that stakeholders want an opportunity to consider and comment on the detail of the secondary legislation. That is reasonable and we have already committed to speaking to all interested parties before drafting the secondary legislation. We will also have the normal short public consultation on the draft order. I therefore do not believe it necessary to have a requirement for a public consultation, as proposed in amendment No. 419. In the light of those assurances on consultation, I hope that the hon. Gentleman is content with the position.
Amendment No. 456 is unnecessary, because section 244 of the 2002 Act will apply to disclosures under the new gateway, in the same way as it applies to disclosures under other gateways in the 2002 Act. Section 244 sets out three considerations to which an authority proposing to disclose information must have regard. They are, first, the need to exclude from disclosure, so far as practicable, information that is contrary to the public interest; secondly, the need to exclude from disclosure, so far as practicable, commercial or personal information; and, thirdly, the extent to which disclosure of commercial or personal information is necessary for the purpose for which the disclosure is made.
Amendment No. 457 would allow the disclosure of information for civil proceedings in respect of intellectual property rights outside the UK. We have reflected on that, and I hear the argument that the hon. Gentleman has made. With that in mind, my officials will discuss the matter with a wide range of stakeholders to see whether there are any benefits or implications for business and consumers in general. I hope we can return to the issue on Report.

Jonathan Djanogly: I am grateful to the Minister for her careful consideration of the amendments and their implications. In relation to amendments Nos. 418 and 419, the full affirmative resolution procedure would be preferable, but I hear what she says about her intention to have full and careful consultation on proposed secondary legislation. That will be appreciated by business and, I hope, provide an adequate way forward. 
In relation to amendment No. 457, the Minister spoke positively about listening to what business has to say, and I hope that provisions will come forward on Report. It would be helpful if she kept us abreast of the situation over the summer. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 906 ordered to stand part of the Bill.

Clauses 907 to 918 ordered to stand part of the Bill.

Clause 919

Power to make consequential amendments etc

Question proposed, That the clause stand part of the Bill.

James Brokenshire: I rise to seek clarification on the clause, which gives a power to the Secretary of State or the Treasury to
“make...provision amending, repealing or revoking any enactment”,
which can be used in circumstances where it is considered
“necessary or expedient in consequence of any provision made by or under this Act.”
The provision appears to extend to any enactment made before the passing of the Bill or any enactment contained in it. I seek clarification on the breadth of subsections (1) and (2) to ensure that we are not inadvertently reincorporating some company law reform provisions that were in a previous draft of the Bill, which were dropped in another place, and that this is not a mechanism to try to recreate those provisions through the back door.
I note that subsection (3) gives power to extend the ambit of the Bill’s provisions to organisations other than companies. I am concerned that that power should not be used lightly—the Bill is likely to have more than 1,000 clauses by the time Parliament has finished with it—because it will clearly impose a significant burden on other organisations if they find themselves subject to the Bill’s provisions and requirements.
It would help if the Minister provided guidance and said what types of organisation she or her Department had in mind when introducing subsection (3), so that we may gain some feel for how widely it might be utilised and why it was thought necessary to reserve that power to extend the operation of the Bill to organisations other than companies. Some assistance would be helpful.
Although the provision allows for the affirmative resolution procedure, clarity is required before we can state that it is acceptable. I hope that the Minister can provide some clarity and assurance, because the drafting suggests that the provision is wide ranging.

Margaret Hodge: I shall make three brief points. First, consequential amendments will arise as a result of other provisions in the Bill. That limits the scope for such amendments being made. Secondly, as the hon. Gentleman said, amendments made in consequence of other provisions will be subject to the affirmative resolution procedure; they will therefore have to be considered by the House. Thirdly, he asked what organisations we had in mind. The main example is the limited liability partnership, to which many aspects of company law apply.

James Brokenshire: I am grateful to the Minister for that clarification. My concern is that the provision should not be used to extend the ambit of the Bill. I hear what she says about consequential amendments—in essence, the tidying up of other legislation so that it is consistent with the Bill. It is helpful to be certain how the power is to be used.
The Minister spoke about partnerships. Yes, there is broad equivalence and similarity between the main types of mechanism for establishing business operations, whether through the limited liability partnership, the plc or the limited liability company. Each approach has its relative merits and demerits. Given her explanation of the ambit and intention of subsection (3), I have no further objection to the clause.

Question put and agreed to.

Clause 919 ordered to stand part of the Bill.

Clause 921

Power to make transitional provision and savings

Question proposed, That the clause stand part of the Bill.

James Brokenshire: The relevant point in this regard is to find out when the Secretary of State will make draft proposals. A particular sensitivity arises in the context of company secretaries. In previous debates, the Minister said that the Government will make transitional provisions and other arrangements, particularly to deal with the existing company secretaries of limited liability companies. The indication was that some form of transitional saving or relief will be applied to limited liability company secretaries to ensure that an automatic approach to their being considered authorised signatories is encompassed in the transitional provisions.
When will those provisions be fleshed out and set out in greater detail? What opportunity will there be for proper consultation on the arrangements, given that they will touch on important and wide-ranging issues? What is the likely timing for their implementation once the relevant regulations have been considered, consulted on and, I hope, agreed to?
My comments are without prejudice to any further representations that we might wish to make on the broader issue of company secretaries as we continue to consider the Bill.

Margaret Hodge: This is an important, though short, clause. It will lead to a set of arrangements across a range of issues as we make the transition from the old provisions and case law to the new legislation.
We intend to consult in the summer break on the main elements of our approach to transitional arrangements and I will ensure that all members of the Committee get copies of the consultation documents. We intend to follow that up with a full consultation on the regulations making the transitional arrangements, which will come into effect after Royal Assent. Our current plan is to commence most of the provisions by October 2007, although some will have to be commenced earlier, particularly those relating to the transparency and takeover directives and the amendments to the first company law directive.
The hon. Gentleman asked specific questions about company secretaries. Following our discussions on authorised signatories, we propose to make transitional arrangements so that private company secretaries in office when the Bill comes into force will be deemed authorised signatories until a company makes its next annual return. That is intended to address any uncertainty of companies or third parties on whether an existing company secretary will continue to have the authority to authenticate documents on behalf of the company. I understand the importance of the provision and assure the hon. Gentleman that there will be full consultation.

James Brokenshire: I am grateful to the Minister for that clarification. On her last point, on company secretaries, I note that the regime is likely only to apply to a period from the date of the introduction of the Bill to the next filing date for an annual return. That is a little more detail than we have had thus far on the Government’s intentions, and to that extent it is welcome. However, it still does not address my fundamental concerns on the matter. That period of time could be quite limited, because after the Bill comes into force a company might have an annual return date a month or a few weeks ahead.
I caution further consideration, because the transitional provision may not provide much comfort to a number of companies that will be faced with a difficult situation, particularly holding companies with a large number of subsidiaries that are trying desperately to sort out an authorised signatory regime. If they find that they have an annual return date only a month after the introduction of the Bill, they might feel that the matter needs further consideration. I hope that the Government will further reflect on the matter and that, rather than for a fixed period, the arrangements might be allowed to run for twelve months as a bare minimum. I maintain that the complications that arise from doing away with the concept of a limited liability company secretary will raise a raft of issues, but I fully recognise that that is a wider debate that we have already had. It might be appropriate to return to the matter on Report, as part of that wider debate.

Question put and agreed to.

Clause 921 ordered to stand part of the Bill.

Clause 922 ordered to stand part of the Bill.

Clause 923

Short title

James Brokenshire: I beg to move amendmentNo. 44, in clause 923, page 457, line 33, leave out “Company Law Reform” and insert “Companies”.
We come to a perhaps less technical amendment. It is a small point, but in many respects an important historical point in the context of companies legislation. Obviously, the title of the Bill is the Company Law Reform Bill, which of course would become the Company Law Reform Act, if enacted and approved. The small point made by the amendment is whether that is the most appropriate title, particularly given the current desire that all companies legislation be consolidated in one place. We felt that it would be more appropriate for the Bill to be referred to as the Companies Bill, reflecting the historical approach towards companies legislation. All the main companies statutes, such as the 1948 Act or the 1985 Act, are known as Companies Acts rather than Company Law Reform Acts.
Although that is a small point compared with some of the more substantive issues that we will no doubt come on to later today—I do not intend to delay the Committee for an extended time—I ask the Minister to consider my proposal and its historical context. It must be clear that the Bill is the primary piece of legislation governing company law in this country, and therefore its most appropriate title would be the Companies Bill rather than the Company Law Reform Bill.

Nick Palmer: I am persuaded by the Opposition spokesperson’s powerful arguments, so I am going to defy the Whips and vote for the amendment.

David Howarth: I cannot follow that.
I also found the two points made by the hon. Member for Hornchurch (James Brokenshire) persuasive. The first point is a sentimental one: legislation of this type has always been called the Companies Act. I think that that should continue. There is no need to diverge from the practice of a century and a half—going back to the era of the Liberal Governments who introduced such legislation.
The other point is a more serious one: since the Government have decided to incorporate a large amount of existing companies legislation into theBill, it is no longer simply a reform Bill. As previous Bills have been, it is part consolidation and part reform Bill. I think that that should be indicated by using the traditional term.

Margaret Hodge: That was a rather nerdish debate. I think that the argument could go both ways. Government Members will be allowed a free vote; we wonder whether Opposition Members will be allowed likewise. The argument put when selecting the title was that the Bill is a pretty radical reform and “company law reform” reflects the fact that we had the company law review; the name retains that connection. I hope that all Members who have sat so patiently in support of their Front Benchers as we have considered the technical details of the Bill will have the opportunity to exercise their judgment on what it should be called.

James Brokenshire: Having received cross-party support for the amendment, it would be churlish of me not to insist that it is put to the vote. I hope that the historical aspects of the Bill, and of companies legislation, can be encapsulated in its name.

Question put, That the amendment be made:—

The Committee divided: Ayes 12, Noes 6.

Question accordingly agreed to.

Clause 923, as amended, ordered to stand part of the Bill.

Clause 924 ordered to stand part of the Bill.

Clause 925

Commencement

Amendment made: No. 482, in clause 925, page 458, line 14, leave out subsection (3).—[Margaret Hodge.]

Clause 925, as amended, ordered to stand part of the Bill.

Clause 139 ordered to stand part of the Bill.

Clause 140

Companies required to have at least one director who is a natural person

Question proposed, That the clause stand part of the Bill.

Jonathan Djanogly: After that historical moment—I was delighted to hear the result—we moved to the privilege amendment. I thought that we all went home after that. Fortunately, that is not the case and we now come to clause 140.
As things stand, companies can have directors who are themselves companies. The clause provides that one of them—presumably the only one if it is a private company with a single director—must be a natural person. Would the Minister please provide the justification for the change and say what representations she has received on the issue in order to explain it?

Margaret Hodge: The hon. Gentleman went through his comments rather fast. If he asks his question again, I may be able to give him an answer.

Jonathan Djanogly: At present, a director does not have to be a natural person. The proposal is that there will have to be a director who is a natural person. I thought it would be appropriate to put on the record the reason why the Government included that change in the Bill.

Margaret Hodge: Okay; my notes tell me that we are doing that, but not why.

Paul Farrelly: May I commend the Minister on this amendment? All too frequently, in my experience, when trying to trace the directors or owners of companies one comes across an endless chain of post-box companies and it is often difficult to find out who is behind them, especially if one is investigating fraud or financial crime. I commend the Government on making this very sensible amendment.

Margaret Hodge: I thank my hon. Friend for his intervention. I wanted to answer the question properly. There are two reasons for the change: first, as the hon. Gentleman said, there are difficulties of enforcement of obligations on directors who are not individuals. Sanctions lack bite against corporate directors, because ultimately it is the shareholders of the corporate director who pay any fine while the threat of imprisonment is ineffectual.
Secondly, when companies have corporate directors it is difficult to trace who controls them. An example is that of company A being the sole director of company B, B being the sole director of company C, and C being the sole director of company A. In practice, things are more complicated but it is clear that those intending to commit fraud may use a company with corporate directors to help to obscure the identities of the individuals involved. That can be a particular problem with the corporate directors of companies established in overseas jurisdictions with poor records of transparency and corporate law enforcement. I again thank my hon. Friend the Member for Newcastle-under-Lyme (Paul Farrelly) for his helpful intervention.

Question put and agreed to.

Clause 140 ordered to stand part of the Bill.

Clause 141

Direction requiring company to make appointment

Jonathan Djanogly: I beg to move amendment No. 265, in clause 141, page 63, line 6, at end insert
“save where the Secretary of State has reasonable grounds for suspecting that the company is carrying on criminal activity in which event the period may be less than one month, as circumstances require.”.
I generally agree with the Minister’s explanation on the previous clause, but my overall thoughts are that there is not necessarily a problem in having non-natural persons as directors. Indeed, for certain types of company—management companies come to mind—it can often be helpful in providing administrative benefits and so on. However, in circumstances in which it is suspected that the company is involved in criminal activity, the DTI will wish to have the record put right, quickly, and possibly much sooner than the one month proposed in subsection (2)—hence the reason for the amendment.

Margaret Hodge: The clause gives a minimum of a month, as it may be impossible for a company to make an appointment in a shorter period. I believe that the hon. Gentleman would accept that in most cases where a company is in breach of its requirement to have directors, it is usually because it is in its death throes and about to fall apart. In the case of active companies, somebody must act as a director.
I am not sure that the amendment is an appropriate provision to deal with the hon. Gentleman’s argument about criminal activity, given the difficulties of appointing directors that quickly. People involved in criminal activities would be pursued in other ways. I accept that it is easier to trace culpable people if a director is appointed, but having a director in place does not necessarily inhibit the criminal activity. The argument goes the other way. Concertinaing the time would make things too difficult and impractical for companies.

Jonathan Djanogly: I hear what the Minister has to say but simply point out that criminals can move quickly—certainly more quickly than a month—so I would have thought that there should be provision to deal with any hint of criminal activity. Obviously, we are not discussing an everyday occurrence, but on the basis of what the Minister said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 141 ordered to stand part of the Bill.

Clause 142

Minimum age for appointment as director

Jonathan Djanogly: I beg to move amendment No. 148, in clause 142, page 63, line 38, leave out subsection (5).

John Bercow: With this it will be convenient to discuss the following amendments: No. 149, in clause 143, page 64, leave out lines 12 and 13.
No. 150, in clause 144, page 64, line 28, at end insert
‘unless, before section 142 comes into force, the company has appointed a natural person over the age of 16 to be a further director.’.

Jonathan Djanogly: Clause 142 is one of the more innovative clauses in the Bill. It provides that people must be 16 to become directors. For the most part, notwithstanding the fact that parents are required to sign until the child is 18 and that children are immune from prosecution, it is a good idea. However, the answer to my written question of 31 January revealed that on 31 December last year there were 431 directors under the age of 16, all in England and Wales—apparently Scotland is not very entrepreneurial at that age—and that some 200 were under 10.
I can envisage circumstances where controlling family companies or trust arrangements from wills drafted many years ago requires that a child be appointed a director, and that not to do so would involve losing assets or causing problems in respect of inheritance. Would the Secretary of State make an exception under clause 143 in such circumstances, which involve an individual rather than some class basis of individuals?
My reading of subsection (5) is that a child who owned all the shares of a company—for example, a 14-year-old who had some bright idea and incorporated— and had his parents as directors and told them what to do presumably could be treated as a shadow director if he could not be a director. I am not sure that that follows logically. If the child is considered not old enough to take decisions as a director before he or she is 16, how can we then say that they have the nous to act as a shadow director? Surely in such circumstances it is incumbent on the real directors not to allow the minor to act as a shadow director. Amendment No. 148, which is a probing amendment, seeks clarification on that issue.
Amendment No. 149 would delete the words
“The regulations may make different provision for different parts of the United Kingdom.”
I am not sure why they should be included in the Bill. I thought that we were considering UK corporate law, so why should it be acceptable to allow directors under 16 in some parts of the country? That seems inconsistent and illogical.

It being twenty-five minutes past Ten o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at One o’clock.